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(CMSA) SWAP FUNDAMENTALS EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS LATEST UPDATE RATED PASS!!! CA$16.59   Add to cart
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(CMSA) SWAP FUNDAMENTALS EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS LATEST UPDATE RATED PASS!!!
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(CMSA) SWAP FUNDAMENTALS EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS LATEST UPDATE RATED PASS!!! Define Swap Is a derivative in which two counterparties exchange cash flows of equal expected values at periodic intervals *Often one leg is a fixed payment while the other is a floating pay...

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  • September 28, 2024
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  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • cmsa swap fundamentals exam questions and answer

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(CMSA) SWAP FUNDAMENTALS EXAM QUESTIONS AND

ANSWERS WITH COMPLETE SOLUTIONS LATEST UPDATE

RATED PASS!!!


Define Swap

Is a derivative in which two counterparties exchange cash flows of equal expected

values at periodic intervals

*Often one leg is a fixed payment while the other is a floating payment

Characteristics of swaps

1. Traded OTC between financial institutions and market makers

2. One of the parties is a swap dealer (Swap Bank) and is usually a large bank

3. The bank offsets a swap through an inter-dealer broker after it executes the swap

4. The NPV of both payment streams must be the same

5. Maturity is usually between 1-5 years

6. Swaps are usually used for hedging, speculating, or managing risk

What are the different types of swaps?

1. Interest Rate Swap

2. Currency Swaps

3. Equity Swaps

4. Basis Swaps

5. Commodity Swap

,Describe the structure of an interest rate swap

An interest rate swap is the exchange of fixed interest payments for floating rate

payments between two parties. Usually one of the parties is a swap dealer (Swap Bank)



*Interest payments are netted, and the party that owes more in interest at a settlement

date makes a payment equal to the difference to the other party

What is the formula for a vanilla interest rate swap?

Net Fixed Rate Payment Made (Received) by Fixed Payer =



[Swap Fixed Rate - (Floating Rate)](#Days/360)Notional Principal

What are the Key Features of an interest rate swap?

Term - Normally 2 and 30 years

Notional Amount - The notional amount is not paid or received but is used to calculate

the cash flows

Payment Frequency - Payments are typically made either quarterly, semi-annually or

annually

Floating Rate - This is normally based on LIBOR & it is used to

reset the swap throughout the swap term thus each floating payment will be different

Fixed Rate - This is set at the beginning of the swap and is also known as the swap rate

Payer/Receiver - In a payer swap you pay the fixed leg and receive the floating leg, and

vice versa for a receiver swap

Describe Long Swap (Buyer)

, You receive LIBOR but pay fixed



Bond Equivalent:

Long float bond & Short fixed bond



Value of Swap (Long) = V(Float) - V(Fixed)

Describe Short Swap (Seller)

You receive fixed but pay LIBOR



Bond Equivalent:

Short float bond & Long fixed bond



Value of Swap (Short) = V(Fixed) - V(Float)

What is the underlying motive behind an interest rate swap?

One party wants greater certainty for their cash flow , while the other looks for

potentially larger returns



(IRS) Interest Rate Swaps can be used to increase or decrease the interest rate

exposure



A portfolio manager making investment decisions for a bond fund will often have a view

on the future direction of interest rate swaps

Which position should you take if you want to increase exposure or decrease?

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